Small consumer firms in urban India have outpaced their larger counterparts, growing at nearly twice the rate over the past year, according to Kantar data. While big companies recorded a modest 2-3% rise in sales volume, smaller brands expanded by 5-7%. Factors such as inflation, sluggish wage growth, and rising housing costs have strained urban purchasing power, prompting consumers to shift towards more affordable brands.
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In a surprising shift within the fast-moving consumer goods (FMCG) sector, small consumer firms have outpaced their larger counterparts in urban India over the past year, growing at nearly twice the rate. According to the latest data from market tracker Kantar, these nimble players have steadily gained market share amid a broader slowdown in consumption, underscoring their ability to adapt to changing consumer preferences and economic conditions.
Market Dynamics: Small vs. Big Players
Big FMCG companies, which account for 34% of the market, registered a modest sales volume increase of 2-3% in urban areas over the past four quarters. In stark contrast, smaller brands, which collectively hold nearly two-thirds of the market, expanded by 5-7%, as per the research firm owned by British communications giant WPP.
Saugata Gupta, managing director at Marico, attributes the muted growth of larger FMCG companies to a dual challenge. “At the top, direct-to-consumer (D2C) brands have taken a share. At the bottom end, a lot of small regional players have captured market share,” Gupta explained.
Kantar’s data tracks both branded and unorganized products, including unpackaged voluminous commodities. It categorizes large firms as those reaching more than a third of India’s 250 million households—these include major publicly listed FMCG companies, which have witnessed sluggish revenue growth over the past year. Meanwhile, smaller firms with more limited reach, often confined to specific states, include emerging new-age brands and traditional regional players.
Urban Consumers Downshift to Affordable Alternatives
Inflationary pressures, low wage growth, and rising housing rentals have curtailed the purchasing power of urban consumers, affecting their spending on daily groceries and essentials. The impact of these economic constraints has been felt differently across the FMCG spectrum, benefiting smaller brands more than their larger counterparts.
“We see mass-priced segments under pressure in urban areas, and consumers seem to have downgraded to lower-priced brands. Smaller companies have an advantage because their cost of distribution is lower. They rely on informal wholesale distribution, allowing them to pass on extra margins to trade partners or end-consumers,” said Mayank Shah, vice-president at Parle Products.
Larger companies have also acknowledged this trend of down-trading. Sudhir Sitapati, managing director at Godrej Consumer Products, recently highlighted the challenge during the company’s earnings call. “We are probably seeing some signs of down-trading in categories like household insecticides. It is certainly a cause of concern, and we will need to watch urban consumption trends closely,” he remarked.
Overall Market Slowdown and Regional Disparities
The overall FMCG market, including both urban and rural segments, slowed from 6.3% in 2023 to 4.8% in 2024. Large players experienced a more pronounced dip, with growth rates declining from 6.5% to 4.4%. Meanwhile, smaller firms also faced a deceleration, dropping from 6.2% to 5.0%.
While bigger companies contributed to the slowdown in urban areas, smaller firms played a key role in dragging down rural market growth. Their growth rate in villages halved to 3% in 2024, whereas large firms managed to sustain a steady 6% growth rate in rural markets.
Several major FMCG companies—including Hindustan Unilever (HUL), ITC, Marico, Parle, and Britannia—have flagged the growing influence of regional brands in their earnings reports. During its December quarter earnings call, ITC noted that competitive intensity remained high, particularly from local players in categories like noodles, snacks, biscuits, and popular soaps.
The rise of regional brands is not a recent phenomenon. Over the past decade, smaller local players have been steadily eating into the market share of established FMCG giants. This trend accelerated during the COVID-19 pandemic as consumers sought affordable, locally sourced alternatives. Currently, local brands control over 40% of the market in key categories such as salty snacks, tea, and spices.
The Road Ahead: Challenges and Opportunities
The growing dominance of smaller FMCG firms signals a structural shift in India’s consumer market. Large companies now face the dual challenge of fending off D2C disruptors in premium segments while competing with cost-efficient regional brands in value segments.
To counter this, big FMCG players may need to rethink their pricing and distribution strategies. Some have already taken steps to strengthen their presence in value-driven categories, launch smaller pack sizes, and expand direct engagement with retailers. Additionally, investment in digital transformation and regional market penetration could help large firms regain lost ground.
While the overall FMCG market may be experiencing a slowdown, the ability of smaller brands to navigate economic headwinds and capture consumer demand underscores their resilience and adaptability. As urban India continues to evolve, competition between large and small FMCG firms is likely to intensify, shaping the future of the sector in the coming years.
